The Worst Stocks in Our World

It's time again for our monthly roundup of the worst stocks in our world -- the bottom 10 companies as rated by our 25,000-ish ranked players in Motley Fool CAPS.

Here are this month's dregs of the dregs, working from the worst up. Given that CAPS has ranked more than 4,000 stocks, making the bottom 10 is quite a dubious honor.

Most of the companies here are familiar to the CAPS community, and they're no stranger to this feature. Northwest is still courting the old "PK," a situation that's familiar to Interstate Bakeries as well. In an age when people are flocking to spend the whole paycheck on twig-and-pebble bread at Whole Foods Market (NASDAQ:WFMI), Wonder Bread isn't working any wonders for Interstate. Lucky investors sometimes make gains on these volatile stubs, but most players who give them the CAPS "red Fonzie" are betting on the obvious: Common shares are usually worth bupkis after bankruptcy.

Penny stocks extraordinaire
A couple of the other dubious names on this list won't be strangers to anyone who follows my skeptical looks at penny stocks. Pegasus Wireless continues to regale the Bahamas press with stories of a PC-to-TV video-streaming product that will trump products from Apple and Microsoft (NASDAQ:MSFT) -- a peculiar claim, given that this product photo shows no high-def TV outputs. Meanwhile, CEO Jay Knabb seems to be delivering little but pledges to the local YMCA. The company 10-K is due in days; soon, we'll see just how well Pegasus is doing.

AFV Solutions, meanwhile, is a CAPS penny classic. An original underperform by CAPS score leader TMF Eldrehad, it carried the following pitch drawn from the filings:

"'We were originally incorporated... under the name Juris Travel. On March 24, 2003, we changed our name to 'Dogs International' .... On February 9, 2005, we changed our name from Dogs International to AFV Solutions, Inc..... We are aggressively pursuing opportunities within the alternative fuel industry and at this point in time have discontinued our previous plan of expanding our upscale pet care facilities beyond the Bed & Biscuit facility we currently operate.'

Can you say '"Rearranging the deck chairs on the Titanic?" I knew you could.

Had it been necessary, Eldrehad might also have pointed out that AFV is burning cash at a rate of about $0.26 per share for the trailing 12 months, but has a nickel per share on the balance sheet.

Eldrehad was also an early adopter of the red thumb on a little company called Javo, which provides coffee-brewing gear. Starbucks (NASDAQ:SBUX) it ain't, but that didn't stop speculators from pushing the stock price up as if it were.

Any ponies in there?
While most of the junk at the bottom of the CAPS dumpster is penny-stock dregs, newcomer Staktek reports good, old-fashioned free cash flow and looks to me (after a very brief perusal) like a potential "buck for $0.75" situation. But CAPS player "ZeroPhaseWavelet" writes, "Staktek has a bunch of aging, fairly useless patents, on which revenues and profits have steadily decreased. They will be out of business within 3 years."

What's it all mean?
One of the most annoying things about Wall Street is that the vast majority of the babble out there is entirely positive. Most analysts' calls on stocks are positive. The spin on most stocks (delivered by these pundits because they're on the speed-dial of "journalists") is positive. The junk on most message boards is overwhelmingly positive, too, and anyone who's the least bit critical of a stock is instantly labeled a "short."

Nobody likes a grumpus, I guess. Except for Motley Fool CAPS.

CAPS rates stocks based on these investor opinions, but it's not simply a popularity contest. CAPS is smarter than that. It doesn't just look at the number of thumbs; it looks at the quality of the stock-pickers wielding them. Because CAPS keeps track of players -- more than 24,000 of them so far -- it knows who's usually right and who's not, and it rates the stocks accordingly.

That doesn't mean every low-rated caps stock is a complete loser. National Dentex, a prior CAPS laggard, seems to have been a victim of ye olde CAPS dogpile. I gave it a thumbs-down because of its declining margins and returns, and because I know a bit about that biz, and because I don't buy the "story." Soon, word was out -- I'm currently the No. 3 player, and people tend to borrow picks from top-10 players -- and poor Dentex feels the sting.

But nothing is set in stone. CAPS is all about accountability. So if the dogpile turns out to be wrong on a stock like Dentex, Staktek, Pegasus, or Javo, the pessimistic players' scores will suffer accordingly, and their influence on the ratings of other stocks will diminish as well. CAPS will get smarter, and, most likely, so will the players who missed the call.

The Foolish bottom line
CAPS is a good time, but it's also a great way to get a read on what some very smart people think about stocks. I dare say you'll learn more about penny-stock superstar Javo Beverage from the commentary on CAPS than you will from reading the company's own PR. Opinions are just opinions, of course. But at least at CAPS, you know the record of the opinionators' previous calls.

CAPS is free to use, so if you've got a contrary opinion, or if you think you know the next big loser, share it with the rest of us. Click here to sign up.

Microsoft is a Motley Fool Inside Value pick. Whole Foods and Starbucks are Stock Advisor recommendations. Try any of our Foolish newsletters free for 30 days.

At the time of publication, Seth Jayson had shares of Microsoft, but no positions in any other company mentioned here. See his latest blog commentary here. View his stock holdings and Fool profile here. Fool rules are here.